Capital Gain

A capital gain is the profit from selling an asset for more than its cost basis. For a rental, it is the part of the return that comes from appreciation rather than rent. Gross rent multiplier measures the rent side only, and the GRM at the time of sale largely decides the capital gain.

If rents grow and the market GRM holds steady, the property's value grows with the rent. If rents grow and the market GRM falls, the two effects can cancel. A property bought at a GRM of 10.4 on $48,000 of rent and sold five years later at the same multiple on higher rent gains exactly in line with rent growth.

Investors who buy at a low GRM in a neighborhood where multiples are rising collect both effects. The reverse also happens. Paying a high GRM in a hot market adds risk to the eventual gain, because a return to the historical multiple can erase years of rent growth at the sale.

Further reading: Capital Gain on Wikipedia.